COURT FILE NO.: CV-11-420294
DATE: 20130722
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: ZHENG ZHANG
Plaintiff
- and -
HUA HAI LI STEEL PIPE CO. LTD., RENJIE ZHANG, RUQIU ZHANG, JIAMING ZHANG and YUMIN YANG
Defendants
BEFORE: Justice S. M. Stevenson
COUNSEL: Christopher P. Goldson, for the Plaintiff
Edward F. P. Hung, for the defendants Renjie Zhang, Ruqiu Zhang, Jiaming Zhang and Yumin Yang
DATE HEARD: June 11, 2013
E N D O R S E M E N T
Introduction
[1] The plaintiff commenced an action on February 17, 2011. She seeks, inter alia, an order directing the defendants, being her father, Renjie Zhang ("Renjie"), her mother, Ruqiu Zhang ("Ruqiu"), her brother, Jiaming Zhang ("Jiaming") and her sister-in-law Yumin Yang ("Yumin") to compensate her for their alleged misappropriation of corporate equity, assets, profits and funds from family businesses she states were operated by the plaintiff and the defendants in China.
[2] The plaintiff contends that she and the individual defendants operated the company known as Hua Hai Li Steel Pipe Co. Ltd. ("Hua Hai") also known as Shanghai Huahaili Steel Pipe Co. Ltd. ("Shanghai Huahaili") and other related and/or subsidiary companies as a family business in China in the 1990s and early 2000s. She contends that Hua Hai/ Shanghai Huahaili is associated with two other companies, being Hai Li Steel Pipe Sales Centre and/or Hua Li Steel Pipe Co. Ltd. and are all part of the family business (collectively referred to as the "Defendant companies"). There appears to be some confusion regarding the proper name of the Defendant companies and the English translations of the company names as alleged by the defendants. However, I note that this issue was not raised by the defendants in submissions.
[3] The plaintiff seeks to have the defendants account for the family assets that were accumulated in China through the Defendant companies. The plaintiff alleges that the assets have already been distributed by the individual defendants to themselves without providing the plaintiff with the assets that she was entitled to receive. The plaintiff submits that all or most of those assets were transferred to Canada.
[4] The defendants have brought a motion for summary judgment as they contend that the plaintiff does not have any legal entitlement to a one-quarter share of the Defendant companies as alleged by the plaintiff. They submit that the plaintiff's claim is that she was a shareholder of the Defendant companies, but there is no evidence to support her position. They further submit that the plaintiff has admitted that she has no evidence to support her position and as such, there is no genuine issue requiring a trial.
[5] The plaintiff seeks the dismissal of the motion for summary judgment. She submits that the defendants have shown a complete disregard for court orders and the rules of disclosure. She contends that the defendants originally failed to attend for examinations for discovery. When they did attend examinations they failed to answer proper questions and have not provided any relevant documents or any documents at all regarding the Defendant companies. She also submits that the defendants have not produced any documentation regarding the distribution of assets or the source of their considerable funds which they retain in Canada.
Issue
Should summary judgment be granted to the defendants in accordance with the relief sought in the Notice of Motion or should the summary judgment motion be dismissed?
Relevant Statutory Provisions
[6] Rule 20 of the Rules of Civil Procedure R.R.O. 1990, Reg. 194, governs motions for summary judgment. Rule 20.01(3) prescribes when a defendant may bring a motion for summary judgment:
20.01(3) A defendant may, after delivering a statement of defence, move with supporting affidavit material or other evidence for summary judgment dismissing all or part of the claim in the statement of claim.
[7] Rule 20.04 (2.1) prescribes the court’s powers on a motion for summary judgment:
20.04(2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.
The Law on Summary Judgment
[8] In the recent Ontario Court of Appeal decision of Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, [2011] O.J. No. 5431 the summary judgment rule was clarified. At paragraphs 37 and 38, the Court of Appeal stated that:
¶37 …the amended rule permits the motion judge to decide the action where he or she is satisfied that by exercising the powers that are now available on a motion for summary judgment, there is no factual or legal issue raised by the parties that requires a trial for its fair and just resolution.
¶38 However, we emphasize that the purpose of the new rule is to eliminate unnecessary trials, not to eliminate all trials. The guiding consideration is whether the summary judgment process, in the circumstances of a given case, will provide an appropriate means for effecting a fair and just resolution of the dispute before the court.
[Footnote omitted.] [Emphasis original.]
[9] The Court of Appeal went on to state at paragraphs 41 to 44 of the Combined Air decision, that there are three types of cases amenable to summary judgment: (1) where the parties agree that it is appropriate to determine an action by way of a motion for summary judgment; (2) those claims or defences that are shown to be without merit; and (3) the disposition of cases on the merits where the trial process is not required in the “interest of justice”.
[10] In a summary judgment motion, the court must apply the “full appreciation test” as set out in Combined Air, at para. 50:
[I]n deciding if these powers should be used to weed out a claim as having no chance of success or be used to resolve all or part of an action, the motion judge must ask the following question: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?
[11] The Court of Appeal also confirmed the requirement that all parties put their "best foot forward" on a motion for summary judgment. At para. 56, the Court stated:
By adopting the full appreciation test, we continue to recognize the established principles regarding the evidentiary obligations on a summary judgment motion. The Supreme Court of Canada addressed this point in Lameman, at para. 11, where the court cited Sharpe J.'s reasons in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 7979 (ON SC), 28 O.R. (3d) 423 (Gen. Div.), at p. 434, in support of the proposition that ‘[e]ach side must 'put its best foot forward' with respect to the existence or non-existence of material issues to be tried.’ This obligation continues to apply under the amended Rule 20. On a motion for summary judgment, a party is not ‘entitled to sit back and rely on the possibility that more favourable facts may develop at trial’: Transamerica, at p. 434.
Discussion
i) The Defendants' Position
[12] Counsel for the defendants acknowledges that there is conflicting evidence as to whether the Defendant companies were state owned in China or family owned and operated, whether any assets of the companies were distributed to the defendants and whether any assets were brought to Canada. Despite this conflicting evidence, counsel for the defendants contends that there is only one key issue; whether there is any evidence that the plaintiff has a legal entitlement to a one-quarter share of the Defendant companies as alleged by her.
[13] The defendants contend that there is no evidence to support the plaintiff's claim that she was a shareholder of the Defendant companies with a one-quarter interest. It is the defendants' position that on the plaintiff's cross-examination on June 14, 2012, she acknowledged that she had no evidence and no corporate documents to prove that she is a one-quarter shareholder.
[14] The defendants contend that the plaintiff also acknowledged on her cross-examination that she was an employee and that she was paid a salary. She indicated that she was not satisfied with the salary but understood that she was paid a low salary, along with other members of the family, so that the extra funds could be used for investments. It was her understanding that the business was operated by the family members, including her, and that the profits, assets and equity were to be equally divided among the family. She acknowledged that there were no legal documents that recorded what percentages were owned by each family member as there was a verbal agreement between the parties that the assets, etc. of the companies would be shared equally.
[15] The defendants submit that when the plaintiff was cross-examined she did not know whether the company had been incorporated, but she stated that the legal representative of the company was her father. She indicated that she believes that at the time her father became the legal representative in approximately 1993, the company was incorporated.
[16] The defendants further contend that the plaintiff's entire case is premised on the fact that the plaintiff believes that she was treated unfairly by the other members of her family. It is the defendants’ position that this is a matter for the family to sort out and it is not for the courts to determine. Counsel for the defendants also submits that there may have been a "promise" made to the plaintiff or an "understanding", but there is no legal entitlement and no legal basis for her claim, as evidenced by the lack of corporate documentation to prove the plaintiff's entitlement and no other evidence to support the plaintiff's claim.
[17] The defendants submit that there is no genuine issue requiring a trial as any "understanding" that the family members may have had is unenforceable as there is no legal agreement or basis upon which the plaintiff can make a claim. They further contend that it does not matter whether the company was incorporated or not, whether it was a private company or a state run company in China or whether the company's assets were transferred to Canada, as the plaintiff has no legal entitlement.
[18] It is the defendants’ position that the court is able to have a full appreciation of the evidence on the issue as to whether the plaintiff has any legal entitlement to a share of the company and as such, the matter should not proceed to trial.
[19] The defendants also submit that the expert opinion provided by the plaintiff is contradictory. They contend that the expert states in one report that the assets of the companies have not been distributed and then in a further report the expert states that the companies did not file any records with the Chinese government to show that the capital and assets of the companies were disbursed, but he concludes that the defendants inappropriately disbursed the assets. Counsel for the defendants further submits that the expert is clearly supporting the plaintiff's position and he is not neutral.
ii) The Plaintiff's Position
[20] Counsel for the plaintiff submits that counsel for the defendants conceded at the hearing of the motion that the Defendant companies were family companies. This fact had been denied by the defendants since the commencement of the litigation. Counsel for the plaintiff submits that there is much material before the Court filed by the defendants denying that the companies were family companies and stating that the companies were state owned in China. The plaintiff contends that this concession by the defendants affects their credibility as they have attempted to mislead the Court in their pleadings and affidavits filed and on cross-examination as to the nature of the ownership of the companies.
[21] The plaintiff contends that she was clear on her examination that she worked in a family company for a low salary in order for the family to use the extra funds to make investments for the benefit of all of the family members. It is the plaintiff's position that had she received proper disclosure from the defendants, the documents would have shown that the defendant companies were in fact family owned and operated.
[22] In his reply submissions, counsel for the defendants disagreed that the defendants had conceded that the companies were family businesses, but rather the defendants acknowledged that these were businesses that included the family members and they were being operated by Renjie and later Jiaming.
[23] The plaintiff contends that the defendants originally failed to attend for examinations, they failed to answer proper questions at examinations and despite two court orders regarding disclosure and examinations, they have yet to comply as they have failed to provide any relevant documents or any documents at all regarding the Defendant companies. The plaintiff further submits that there has been no disclosure regarding the distribution of assets from the companies or the source of considerable funds that the defendants have in Canada.
[24] It is the position of the plaintiff that the defendants have continued with their refusal to disclose relevant and pertinent documents regarding the Defendant companies. The plaintiff submits that the defendants did not disclose in their Affidavit of Documents a list of documents previously under their possession. She further submits that there has been no updated Affidavit of Documents provided by the defendants, no further disclosure has been made despite requests over two years and no consent has been provided, despite being requested, to allow the plaintiff to obtain the necessary information regarding the companies directly from relevant government agencies and sources in China. Further, the defendants continue to refuse to provide financial disclosure such as financial statements of the companies, bank statements, investment statements and tax returns and assessments for the companies. The defendants also refuse to provide information regarding their own financial assets both in Canada and in China.
[25] The plaintiff contends that she has hired a legal expert in China to review various government records given the lack of disclosure from the defendants. In his reports, the plaintiff's expert states that no records have been filed with the Chinese government regarding the assets of the Defendant companies or the distribution of assets of the companies. It is the opinion of the plaintiff's legal expert that as the defendants, Renjie and Jiaming, cannot produce evidence to show the location and disposition of the assets, the assets of the companies have been disposed of and transferred to the individual defendants.
[26] The plaintiff argues that the Court should draw an adverse inference from the defendants' failure to provide relevant documents with respect to the Defendant companies and that the defendants cannot rely on their own failure to disclose relevant documents in support of their motion for summary judgment and their position that the plaintiff has no legal entitlement to a share in the companies.
[27] The plaintiff further submits that on examination the defendants confirmed that they are or were in possession of significant financial assets, those being a residential property with a value of approximately $800,000 located in Toronto; a bank deposit of approximately $600,000 USD in the possession of Renjie and Ruqiu Zhang ("Ruqiu") held at the Royal Bank of Canada and a bank deposit of approximately $640,000 CAD given by Ruqiu to the plaintiff over the course of the years 2003 to 2010 held at the Royal Bank of Canada. The plaintiff questions the source of these funds of over $2,000,000.
[28] The plaintiff contends that Ruqiu provided only vague answers as to the source of the funds transferred into Canada and she refused to undertake to provide any documentation to show the source of the two bank deposits. The plaintiff further contends that Jiaming only provided a vague answer regarding the purchase of the residential property in Toronto mentioned above and he refused to provide any documentation to show the source of the funds used to purchase the residential property. The plaintiff also submits that the defendants refused to answer any questions regarding the assets and financial information pertaining to Shanghai Huahaili and related companies.
[29] The plaintiff contends that without this necessary corporate information, that is clearly in the control of or able to be obtained by the defendants Renjie and Jiaming who were controlling the companies, the issue of whether she has a legal interest in the companies, what the assets of the companies were and whether those assets were distributed to the individual defendants, cannot be addressed. She disputes the defendants' position that the Court is in a position to fully appreciate the evidence on the issue of whether she has a legal interest in the companies as many facts are in dispute, there is no disclosure by the defendants and there are many credibility issues regarding the agreement between the family members with respect to the ownership of the business, the operation of the business and the distribution of any assets or equity from the business. She submits that a trial is required to properly determine the issues.
Disposition
[30] For the following reasons, I find that there is a genuine issue requiring a trial and I am not prepared to grant the defendants' request for an order granting summary judgment. Taking into consideration the evidence before me, Rule 20 of the Rules of Civil Procedure, and the test in Combined Air, I do not have a full appreciation of the evidence and issues that is required for me to make dispositive findings.
[31] I disagree with the defendants' submission that the Court is able to fully appreciate the evidence at this stage as to whether or not the plaintiff has a legal interest in the companies. The Court cannot properly determine this issue as the necessary disclosure is not before the Court. There are clearly documents pertaining to the Defendant companies that have been or would be in the possession of the defendants, certainly Renjie and Jiaming, as they controlled the companies and they were responsible for any filings with the government.
[32] I find the lack of disclosure by the defendants concerning, not only related to corporate documentation but also in failing to disclose if there was a distribution of the funds or assets from these companies, and if so where the funds went, and the source of the defendants' substantial assets in Canada. By failing to answer these questions and provide this disclosure, an adverse inference must be drawn at this stage against the defendants. This inference is also drawn by the fact that the defendants have refused to sign necessary consents allowing the plaintiff to obtain this information. It is incumbent upon the defendants to put their "best foot forward" on this summary judgment motion and they clearly have not done so, given their lack of disclosure.
[33] Counsel for the defendants submits that the plaintiff is using the process of litigation to obtain evidence for her claim, but that the plaintiff herself has not provided full disclosure. He points to the fact that the plaintiff's counsel on the plaintiff's cross-examination, Mr. Wu, indicated that documentation was available from the plaintiff but that it would only be disclosed simultaneously with the disclosure of the defendants. However, I note that the plaintiff deposed in her Supplementary Affidavit dated June 4, 2013, that she provided documentary disclosure to the defendants by serving by courier an Affidavit of Documents, dated November 16, 2011, upon the individual defendants on November 17, 2011.
[34] Additionally, attached to the plaintiff's Affidavit was a letter from her counsel dated May 29, 2013, to the defendants' counsel, stating that the plaintiff's Affidavit of Documents was delivered to the individual defendants on November 17, 2011, prior to the defendants' counsel being retained. In the letter, counsel for the plaintiff states that in a prior conversation, counsel for the defendants confirmed that he had received a copy of the plaintiff's Affidavit of Documents. He also indicated that if this was not correct, he would deliver another set of Affidavit of Documents. Counsel for the defendants indicated in subsequent correspondence that he did not recall having a conversation with counsel for the plaintiff, Mr. Wu, regarding this issue but, I note that in his correspondence he did not request another copy of the Affidavit of Documents.
[35] I agree with the plaintiff's position as set out in her Factum, that there are clearly issues in dispute regarding the ownership and legal nature of the Defendant companies, the amount of family investment in the Defendant companies, the involvement of the plaintiff and the defendants in the Defendant companies, the disposition and location of the assets from the Defendant companies, the sources of the defendants' significant assets in Canada, and the plaintiff's interest in these assets and those of the Defendant companies. All of these issues must be determined at trial as I am not able to weigh and draw inferences based solely on the conflicting Affidavits of the parties and from the transcripts from the cross-examinations.
[36] There are clearly material facts in dispute as to whether there was an enforceable agreement between the parties regarding the sharing of assets of the Defendant companies. This would be best determined at trial by viva voce evidence as these facts and issues also require an assessment of the credibility of the witnesses given the conflicting evidence.
[37] Counsel for the defendants also submits that if any agreement or understanding existed between the plaintiff, her brother and her parents, there is no evidence that there was such an agreement or understanding that included the plaintiff's sister-in-law, Yumin. Counsel argues that Yumin should be dismissed from the action. It is submitted by the plaintiff that some of the funds removed from the companies and distributed to Jiaming included funds to purchase the home where he currently resides with Yumin. There is insufficient evidence before the Court, given the defendants' lack of disclosure, on which the Court could conclude that Yumin should be dismissed from the action as she may have had some involvement with the Defendant companies, with the alleged distribution of assets or the use of the assets upon distribution. This issue will have to be fully canvassed at trial in order to make a proper determination.
Order
[38] The defendants' motion for summary judgment is dismissed.
[39] In order to move the matter forward, the parties shall exchange updated Affidavits of Documents within 45 days and shall complete examinations for discovery. Either party shall be entitled to bring any necessary motions if full disclosure is not provided and proper questions are not answered at the examinations for discovery.
[40] I urge the parties to agree on costs; however, if the parties are unable to agree, any party seeking costs shall do so by serving and filing written costs submissions, not to exceed two double-spaced pages within 20 days, along with a Costs Outline and any Offers to Settle. A party wishing to respond shall do so by serving and filing written costs submissions, not to exceed two double-spaced pages, 14 days thereafter.
Stevenson J.
DATE: July 22, 2013